Good afternoon, ladies and gentlemen. Welcome to the analyst briefing for the Sun Hung Kai Properties interim result announcement 2014-2015. We will commence the briefing in just a moment. We will start with a summary on the interim results and the business review, followed by question and answer session. The presenters today are Mr. Patrick Chan, who is on stage, our Executive Director and Chief Financial Officer of Sun Hung Kai Properties, and Mr. Brian Sum, Senior Manager of Corporate Planning. At this moment, may I turn the stage to Mr. Patrick Chan to help us start the briefing today.
Thank you, Cal. Good afternoon, ladies and gentlemen. Thank you for attending SHKP's FY 2015 interim results announcement this afternoon. Lunar New Year is always a time for celebration and merrymaking and, of course, eating. For Chinese, we all know, right? Following the highlights of the movie "Frozen." For parents, you must know this movie, "Frozen." We have all probably let it go too much during the holiday, and now we, or just me, need to Let's go to gym. For those who do not understand Cantonese, the pronunciation of Chinese rice pudding for go is actually identical to G-O, go. So let, E-A-T, eat Chinese rice pudding. Let it go. Right. Before we start, I wish you all happiness, health, and prosperity in the year of the Goat. [Non-English content].
My colleague, as usual, Brian and I will give a short presentation on the interim results for FY 2015 and the outlook of the group's businesses. I will first provide you with the financial highlights, and then Brian will give you an update on our businesses. Wow, they all came. After that, I will walk you through the market prospects and our group's strategies going forward. The whole presentation will last for around 20 minutes, and subsequently, we will open the floor to your questions. I will now share with you some of the financial indicators. Here is a snapshot of the key numbers. Please note, all figures are in Hong Kong dollars. The underlying net profit was HKD 8.5 billion, dropped by 20.5% year-on-year for the six months ended December 31st, 2014.
The decline in profit was primarily due to lower development profit in Hong Kong and Mainland China, which I shall elaborate a bit more in the next slide. On the other hand, the reported net profit, which includes revaluation gain, was down by 17.5% year-on-year to HKD 15.7 billion. The underlying earnings per share decreased 22.6% year-on-year to HKD 3.08, while the reported earnings per share declined by 19.8% year-on-year to HKD 5.71, both owing to the increased number of outstanding shares resulted from the exercising of share warrants. Bonus warrants, I mean. The interim dividend per share recommended by the board of directors was at HKD 0.95, the same as for the corresponding period last year. Let me elaborate the profit in details with reference to the breakdown by segment. The group's investment property portfolio continued to perform well, with net rental income of over HKD 7.4 billion, up 8.1% year-on-year.
In Hong Kong, net rental income grew by 7.5% year-on-year to around HKD 6 billion, which mainly was driven by the higher rents for new leases and renewals. The net rental income on the mainland rose 13.5% year-on-year to HKD 1.2 billion. If we exclude a one-off rental income recorded in the previous period and pre-opening expenses, the growth rate would be actually around 17.17%. However, profits from property development for sale declined to HKD 2.36 billion during the period. In Hong Kong, property development profit decreased 45% year-on-year to around HKD 1.7 billion by cause of the different product mix compared to the same period last year. For this period under review, property sales mainly came from One Harbour Square, Mount One, and [Govan], whereas during the last period, property sales of 181 units of The Cullinan were booked, which accounted for over 50% of the development profit in Hong Kong.
In terms of margin, if adding back the selling and marketing expenses related to the projects under development, the development margin would be 38%. The development profit or EBIT from Mainland China dropped to around HKD 600 million. These are basically three factors attributed to the drop. First, there was 22% less GFA booked during the period. I would like to draw your attention to the fact that only sales from properties which have been handed over to buyers can be recognized. Second, there was a change in the product mix. Shanghai Arch, which is a high margin development, contributed less than HKD 600 million property sales during this period versus HKD 2.7 billion in the last period. Third, our 40% owned development, the Foothill Residence in Hangzhou, recognized a loss during the period under review.
If excluding the loss of Foothill Residence as well as the selling and marketing expenses related to the projects under development, the development margin would be 24%. Turning to the hotel. Our hotel operations record a decent profit growth of 12% year-on-year, which was partially attributed by the increased contribution from Royal Plaza post renovation and solid performance of other hotels. If excluding the impact from Royal Plaza, the growth in profit would be 8% year-on-year. Profits from other businesses amounted to HKD 2.1 billion, 18%, one eight percent, higher than that of the last period. The growth was driven by the rebound in profit from SmarTone and decent profit growth of SUNeVision. In sum, the group's total operating profit was HKD 12.6 billion, down by around 16% year-on-year for the period end of December 31st, 2014.
As at December 31st, 2014, the group's gearing ratio remained at a low level of 13.8%, which was supported by the proceeds of property sales and the bonus warrants. Shareholders' funds and net debt stood at HKD 433.1 billion and HKD 59.7 billion respectively. The interest cover for first half FY 2015 was 8.4 x versus 11.6 x for the same period last year. I think I would like to take a break and pass the time to Brian to give you a business review of our operations in Hong Kong and on the mainland.
Thank you, Patrick. Let me start by talking about the group's property business in Hong Kong. As at the end of December last year, the group's total land bank in Hong Kong was over 49.5 million square feet, including 28.7 million square feet of completed investment properties and close to 21 million square feet of properties under development. We can see from the chart on the right that for property under development, 80% is for residential purpose. This is enough for the group's future development needs for at least five years. If we look at the chart on the left, our total rental portfolio, around 37% is shopping centers and 35% is office buildings. The rest includes hotels, residential, and industrial buildings. On top of that, the group also holds about 27 million square feet of farmland in terms of site area in the New Territories.
During the period under review, the group has been very active on land acquisitions in Hong Kong. Three new sites were acquired through government public tenders in this period, including two large-scale, low-density developments adjacent to the Hong Kong Wetland Park in Tin Shui Wai. These three sites together will provide 2.7 million square feet of GFA as a future sellable resources. In February this year, the group acquired another development site at Light Rail Tin Sau stop in Tin Shui Wai. This project, sitting atop the Tin Sau stop, will be developed into nearly 1 million square feet of residential premises. Following this acquisition, the group's total land bank in Hong Kong was further increased to over 50 million square feet. Let's turn to group's property development business in Hong Kong. During this period, the groups recognized around HKD 5.4 billion property sale with satisfactory margin.
The sales mainly came from projects such as One Harbour Square, which is an office building in Kowloon East, Viva in Tsuen Wan West, and Mount One in Fanling. On property completion, Mount One was completed during the period, and we expect another 1.3 million square feet of GFA will be completed in second half of current financial year. For the next financial year, we schedule to complete over 3 million square feet of residential GFA, of which around 57% have been sold already. Regarding contracted sales achieved in Hong Kong, the group has achieved outstanding performance with around HKD 16 billion sales made for this period. The major residential projects sold includes The Wings IIIA and The Wings IIIB in Tseung Kwan O, Viva in Tsuen Wan West, and the group also sold some office building, include W50 in Wong Chuk Hang, and One Harbour Square in Kowloon East.
Since January this year, the group continues to achieve strong property sales and added additional HKD 9 billion contracted sales, mainly from Century Link phase one in Tung Chung. In the coming months, we have a very strong pipeline of property development for sale. Major projects to be launched include a new batch of units of The Cullinan at Kowloon Station, Ho Man Tin Project Phase One, a development project under YOHO Brand in Yuen Long, and the residential units at the waterfront site at Tseung Kwan O. Let's take a look at our Hong Kong rental portfolio. The group's diversified rental portfolio of over 28 million square feet of GFA continued to perform well, with overall occupancy staying at 95% and enjoying positive rental reversion. With regular upgrades of the group's properties and premium services provided to our customers, the group continues to uphold competitive edge in the leasing market.
In addition to that, we will keep seeking opportunities to dispose some non-core assets. Gross rental income in Hong Kong grew by 6% year-on-year to over HKD 7.6 billion in this period. The growth was mainly driven by high rents for new leases and renewals. We can see from the pie chart on the right, shopping center contributed over half of the gross rental income in Hong Kong, while offices contributed around 1/3. For the past five years, the gross rental income grew steadily with a CAGR of 10% per annum. This large rental income provides the groups with strong support for its future developments and business operations. Let's move on to the group's retail portfolio in Hong Kong. With the group's extensive network of shopping malls covering both populous and tourism-focused area, the retail portfolio as a whole continues to perform well.
In particular, for those regional mall along the railway lines. Despite a short period of disruption in operations at selected shopping malls due to the occupying movements in the last quarter of 2014. For the period under review, growth of tenant sales of the group's major shopping malls continued to outperform the market. Positive rental reversions with high occupancy were also achieved. The gross rental income generated from shopping malls was around HKD 4 billion, up 6.7% year-on-year during the period. The groups continues to enhance asset quality to create value for shareholders. The reconfigurations at MOKO, formerly known as Grand Century Place in Mong Kok, is the latest showcase of the group's commitment to its asset enhancement initiatives. The phase of reconfiguration will be completed soon, and over 90% of the tenants already opened for business.
The new layouts and escalator will improve circulations of shoppers, and we expect both rental income and traffic will be enhanced. Other asset enhancements plans in the pipeline include a major renovations of Metroplaza in Kwai Fong. Going forward, the group will continue to expand its retail portfolio along the railway lines. A mall at YOHO Midtown in Yuen Long with 250,000 sq ft of retail space is scheduled to open in late 2015. This mall, together with the Sun Yuen Long Centre, which is under renovation, and also an upcoming 470,000 sq ft mall, will form 1 million square feet YOHO MALL in the future. PopWalk, the retail podium at The Wings II in Tseung Kwan O, is expected to commence operation in earlier next year.
Besides, a premium mall of nearly 300,000 sq ft at MTR's Nam Cheong Station and a mall of over 130,000 sq ft beneath a residential development on the [Lot Points] waterfront will be completed in phases. Next, turning to the group's office portfolio in Hong Kong. Gross rental income from office portfolio was around HKD 2.5 billion, up 5.7% from last period. Occupancy of Hongkong IFC was higher during this period, while Honkong ICC recorded positive rental reversion. Other office in non-central areas such as Millennium City's portfolio in Kowloon East and Metroplaza in Kwai Fong also performed well. Ongoing renovations of office portfolio will maintain high standard of the group's office premises. That's cover the group's property business in Hong Kong. Let's move on to the group's property business on the mainland.
As at the end of December last year, the group's mainland land bank amounted to 81.6 million square feet of GFA, of which 10.3 million square feet are completed investment properties and 71.3 million square feet are properties under development. You can see from the chart on the left, of the completed investment properties, 58% are shopping malls and another 30% are offices. The rest includes hotels and service suites. The other chart shows that of the properties under development, around 63% will be residential, 21% offices, and 13% shopping centers. Moving on to the mainland property developments. For this period, the groups completed five projects with about 3.4 million square feet of the attributable GFA and book over HKD 4 billion property sales. The sales mainly came from projects such as Shanghai Arch Phase One, Forest Hills Phase 1A, and Park Royale Phase 1A and B.
There is over HKD 8 billion property sales yet to be recognized. In terms of contracted sales on the mainland, the group recorded around HKD 2.7 billion for this period, mainly from projects including Shanghai Arch Phase One, The Kunlun Jing An, and Oriental Bund in Foshan. We plan to launch several major projects in the coming months, including Guangzhou Commercial Centre, a premium office tower of Forest Hills, which is adjacent to the Guangzhou East Railway Station, a new batch of luxury residential units at The Kunlun Jing An, and a new phase of residential units at Oriental Bund in Foshan. Next, I would like to update you about the group's mainland property investments. Currently, the group owns about 10.3 million square feet of attributable GFA of investment properties on the mainland, mainly in prime cities with strong presence in Shanghai.
During the period under review, the rental portfolio as a whole continued to enjoy positive rental reversion with high occupancy. Gross rental income rose by 6% year-on-year to HKD 1.6 billion. Please be reminded that there was a one-off rental income of HKD 67 million recorded in last period, driven mainly by lease modifications finalized by then. If we take out this one-off effect, the growth rate of gross rental income would be 11%. The bar charts on the left show that the rental income group impressively over the past five years, with a CAGR of 37%. On your right, you can see from the chart that 56% of the rental income came from shopping mall and around 35% from offices. Let me give you some quick updates on the group's two flagship integrated projects in Shanghai.
Shanghai IFC in Pudong, one of the group's iconic developments in Shanghai, continues to perform well. The fully let Shanghai IFC Mall recorded high sales volume and positive rental reversion, despite a slowdown in the retail market. The two office towers, which are now fully occupied, are expected to benefit from the expansion of the free trade zone in Shanghai later this year. Located in the traditional commercial district of Puxi, Shanghai ICC is another integrated complex developed by the groups. The 1.3 million square feet iAPM mall at Shanghai ICC, entering the second year of operations in Puxi, continued to record high traffic flow and breathtaking sales. The occupancy rate at One ICC office building stay at a high level, while Two ICC is scheduled to be completed in 2015 and pre-leasing of this is now underway.
Here I would like to give you some quick progress updates on the development of Xujiahui Center project in Shanghai. The detailed design plans for these projects are close to their final stage. Superstructure work has already commenced for Lot one relocated on Huashan Road, of which about 180,000 sq ft of office space will be up for sale in late 2015. Upon completion of this 7.6 million square feet integrated project, the group's portfolio in Shanghai will be further strengthened. Going forward, the group will add two new malls in Guangzhou in the coming months, expanding its retail network in key location of prime city on the mainland. First one will be the 50% owned Parc Central, a four-story shopping mall on Tianhe Road in Guangzhou. It is scheduled to be open in late 2015. Pre-leasing of this nearly 900,000 sq ft mall has been progressing very well.
The mall is 33% owned at Tianhui Plaza in Zhujiang New Town in Guangzhou, will have 1 million square feet of retail space and a direct linkage to the latter metro station. It is expected to open in 2016. These new projects, upon completion, will further strengthen the group's retail networks on the mainland. Lastly, let me talk about the performance of our hotel operation. The group's hotel business delivers satisfactory growth in both revenue and operating profit, driven by higher average RevPAR and increased the contribution from Royal Plaza post-renovation. If excluding the newly renovated Royal Plaza, the growth in revenue and operating profit remain decent at 7% and around 8% year-on-year, respectively. The hotel portfolio in Hong Kong continued to deliver solid results with decent growth in RevPAR, although certain hotels were affected temporarily by the occupying movement in the last quarter of 2014.
The Ritz-Carlton Shanghai, Pudong continues to do well with its RevPAR staying among the top tier in the luxury hotel segment in Shanghai. The group will have two new hotels in Hong Kong, adding over 1,300 rooms, one in the North Point and the other in Sha Tin. Construction works of both hotels have commenced.
That is going to conclude my part of presentation. Now I will pass the microphone to Patrick to discuss the group's strategy and prospects. Thank you.
Thank you, Brian. I am going to shed light on our views on the market prior to the group's strategies and prospects. The Hong Kong residential market is expected to remain positive, underpinned by solid demand from end users, in particular for small to medium-sized units. At the same time, in view of the healthy demand and limited supply in the near future, retail and office leasing markets in major districts would remain stable. Across the border, given the relaxed government measures, new home sales in key mainland cities are likely to improve further. Although there are impacts from the anti-extravagance campaign, leasing demand for prime retail spaces in major cities is expected to be upheld by the rising spending power of the middle-income class.
Taking this opportunity, I would like to reiterate that the group will continue to adhere to its time-tested longstanding strategy, which includes the following: achieve a balance in income from public sales and rental business. Foster the group's brand appeal with high-quality products and excellent services. Stick to a selective and focused approach to the investments on the mainland. Observe the discipline of a prudent financial management. Looking ahead, the group's property development arm, which targets at higher asset turnover, is expected to have rising production volume. There will be over 3 million square feet of residential GFA per annum to be completed in the next two financial years. As such, the group will continue to acquire land, backing up by its strong financial positions and amid the rising land supply in Hong Kong with the goal of increasing production for sale over time.
The group's sellable resources is abundant, and we are confident in achieving the full year sales target while committing to building premium products with cost-effective designs to mitigate the impact of the rising construction costs. Furthermore, the property investment arm is expected to enjoy steady rental income growth with positive rental reversion and sustained high occupancy. The group will continue to expand its investment property portfolio. Its strong pipeline of new investment properties, including over 1 million square feet of retail space to be commenced operation before end of 2016, as well as more completions, including offices and hotels in the coming years, will support the rental growth in the future. The group will keep strengthening the value of its investment property portfolio through ongoing asset enhancement initiatives. Lastly, the group, as always, will proactively optimize its portfolio through the sale of non-core assets.
This is the end of our presentation. Thank you.
Now, before we continue, I would like to introduce to you our executives and board members who are on the panel with us today. Starting from your left to right, Mr. Brian Sum, Senior Manager, Corporate Planning of Sun Hung Kai Properties. Mr. Allen Fung, Executive Director of Sun Hung Kai Properties. Mr. Patrick Chan, Executive Director and Chief Financial Officer of Sun Hung Kai Properties. Mr. Victor Lui, Deputy Managing Director of Sun Hung Kai Properties. Mr. Raymond Kwok, Chairman and Managing Director of Sun Hung Kai Properties. Mr. Mike Wong, Deputy Managing Director of Sun Hung Kai Properties. Mr. Adam Kwok, Executive Director of Sun Hung Kai Properties, and Mr. Eric Tung, Executive Director of Sun Hung Kai Properties. At this moment, may I invite the first question, please? The gentleman on the second row.
Hello. Citig roup, Ken. I have two questions. First question is basically on your cash. I am expecting you are getting a lot of cash back. Last year, you were selling very good in Hong Kong, HKD 25 billion, and already get HKD 10 billion from bonus warrant and upcoming, maybe next year, you also get another HKD 10 billion, and you have very strong sales pipeline. It seems to me that the gearing is likely on a continuous downtrend. My question is, will you be likely to increase, let us say, the dividend payout ratio to reward the shareholders? Or basically, you may be more aggressive in land banking?
We will continue to invest in Hong Kong. Definitely, the land acquisition opportunity in Hong Kong is much more appealing. Also, we will continue to maintain our dividend policy, i.e., we will continue to apply 40%-50% of our underlying profit as proposed dividend payment.
Well, last year, we bought a big piece of land in Shanghai, and we are going to focus on building the investment property there. It would cost some money to build the investment property. We intend to bid for land in Hong Kong, yeah. Therefore, I agree, I think our leverage has gone down, yeah, due to the bonus. Due to the warrant exercise, yeah.
My second question is on China. Your China contract for sales, HKD 2.7 billion, is a bit behind. Is there any improvement after the relaxation of HPR and the mortgage recently, let's say, the sales performance since January in China this year? You also were relatively quiet, especially on the residential side, after the [Xujiahui Center]. Can you share with us your China strategy?
I think on China, you have to look at our rental property too, right? I think our China rental would be about HKD 3 billion per annum and growing. When you look at China, you have to look beyond just the development property for sale. For the [Xujiahui Center], it is a very big piece of land, costing us HKD 24 billion. Therefore, in a way, I think to keep the geographical allocation of Hong Kong, China, the 75% to 25% ratio, I think on China, we will focus on building the [Xujiahui Center].
Actually, the residential market in the mainland did slow down a little bit last year, partly due to the control measure and partly due to a very open sale in 2013. However, I think the relaxation on mortgage on the home buying restriction and also the recent easing of the reserve rates on banks will create some support to the market this year. I think those projects in the first-tier city and also those commercial projects may be more resilient. An example is that, like our Shanghai Arch project, we have a very sustainable sale in the past two years. Up to now, we have already disposed over 150 units. That represents 80% of phase one of the project. Each unit is carrying a price tag of CNY 25 million . I think that is a record in the city.
Together with other commercial projects, maybe Adam, you can talk a little bit in Guangzhou.
I think Victor is right that in Shanghai we have a good steady sales record. In Guangzhou especially, we have our new office coming up that we are selling right next to the Guangzhou East Railway Station, and it is called GCC, Guangzhou Commercial Centre, that we aim to sell this year. On top of that, we have our joint venture project in Pearl River New Town, as you know, [Top Plaza]. We have a phase two that we will release certain floors for sale as well. Hopefully that will help combat the slowdown in the residential market. We also have a good, steady sales progress in the Foshan . As you know, it is a very supply-driven market, oversupply market. We are doing our best there and selling at a steady rate. We have a new phase that will launch in June.
Thank you, gentlemen. Second question. Again, second row.
Hi, this is Praveen Choudhary from Morgan Stanley. Two questions. The first question is related to the residential prices for two different categories in Hong Kong, the small and medium size, as well as large sized. Wanted to understand the strategy to focus on those two segments from Sun Hung Kai Properties perspective. There is a new news that just came out on HKMA clamped down on the smaller size projects, where I thought the focus has turned for most of the developer, including Sun Hung Kai Properties. How do you want to think about that and what is the outlook going forward? Then I have a follow-up second question. Thank you.
On the prices of the two segments, I think you all know that we just have a sold out on the Century Link project in Tung Chung, and together with the earlier sales of The Wings Project, both IIIA and IIIB, they are both selling well. Although the market is now focusing on end users, we are seeing that local demand is still very strong, backed by a prevailing low interest rate and income growth, together with an inflation that is escalating the rental. That will continue to induce more people or renters to buy the flats. The increasing construction cost will also attract a lot of people putting their money on properties as a means of asset allocation . For the luxury sector, I think the market is gradually adapting to the new measures and including the Stamp Duty.
I think transaction would gradually improving later this year. Latest example is that we have done some multiple transaction in Twelve Peaks in the peak before the Chinese New Year with a very good price. We would expect that even the luxury sector will perform well with prices stabilized.
The second question I had was related to your ability or intention to move beyond Hong Kong and China or going overseas, considering these two markets have been very much impacted by regulation. Your competitors and peers have tried to move out and have been successful to a certain extent. I'm just wondering if you were thinking in that direction. Thank you very much.
Well, I think for the foreseeable future, we will focus on Hong Kong and China. Especially, we have several major integrated projects coming up that we need to focus on execution. In a way, in order to grab more market share, we need to work harder on execution, yeah. Thank you. Thank you. To answer your earlier question, on the luxury units in Hong Kong, we'll focus on achieving profit margin on the small units because there'll be more land coming up in Hong Kong. We'll focus more on the volume, yeah.
Thank you, Mr. Kwok.
Yeah.
Other questions? The lady at the back.
Good afternoon. Perveen Wong from HSBC . I have two questions. The first one is on the development earnings. Looking at your completion schedule for Hong Kong in the second half, out of the three projects, two of them are yet to be launched, Acappella and also the Ho Man Tin projects. These are expected to contribute to the second half earnings. Do you see any earnings risk, if there's any sort of slippages in the launches of these projects later on in the next few months? Say, for example, if there's any dampening in the sentiment in the physical market on the back of policies, et cetera. The second question is on the rental side.
Just would like to get more color from you on your outlook for the Hong Kong office market and within your Hong Kong rental portfolio between retail and office, which segment do you expect to deliver stronger rental growth, going forward? Thanks.
Okay. The two projects you mentioned actually are not included in our sales target this year. However, for the Ho Man Tin project, we are planning to launch around middle of this year, and this is a very high-rating project, situated in traditional luxury location with panoramic sea view and together with this connection with the future MTR station. Whereas the Acappella, it would be launched later this year as completed properties. We have gained valuable experience on marketing our Viva project in last year as completed development, so that a purchaser can truly visualize the beauty of the environment and also our superb quality. Acappella is comprising mostly small to medium-sized units, which are highly marketable. So, we are very confident on the sales of both projects.
Also, for the next four months, we plan to sell some units in The Cullinan, right? Yeah.
Yes. In next month, we are planning to dispose some of the prime units as the last batch or the final batch of The Cullinan. I think that will also deliver good, reasonable profit for us. Together with our disposal of some of our non-core rental properties, like retail premises and also offices, that will also produce earnings for us in this year.
Maybe I can supplement on the issue of the completion. Probably contrary to the low production this year, for the next two financial years, we will be completing more than three million residential properties. Because it might be due to a cyclical issue that we have relatively low production this year. But for the next two years, we have very solid supply. With strong sales impending in the next few months, just [Mr. Lo] has said, we are very confident the results forthcoming will be very satisfactory.
On the office and commercial, for the past six months, we have been able to appoint renewal, raise the rental by about 20%-25% for office and also for retail in Hong Kong.
Yes. I think the momentum of the office market will be sustainable. Actually, we have seen a lot of positive take-up in most of the sub-markets. We have also seen a number of newcomers from the banking and finance sectors of the mainland and other Asian countries. Actually, most of the Grade A buildings now in Central are in high occupancy. Like One and Two IFC, we are almost fully let. Even ICC, we are doing a premium rent backed by the strong take-up.
For the core location, there is no major competition in the near future. Even outside Central, we have seen a lot of activities, especially in Kowloon East. We have seen a lot of big relocation from those companies from the insurance, product sourcing, and retail sectors. For those long tenants, they are very choosy on landlords and project quality. So actually, our buildings in the Millennium City portfolio are benefited. In fact, for the office, in the past decade, the supply has been quite stable in the range of 2.5 million square feet per annum. So, we should see that the office leasing market should continue to be underpinned by the demand from various sectors and with a solid rental.
Thank you very much. Other questions? Third row.
Leo Ng from JP Morgan. As the company has already generated HKD 25 billion sales from Hong Kong after selling Century Link, will the company consider revising the sales target for Hong Kong? At the same time, as we have some new property cooling measures, what is the company's view on the residential outlook now and on the sales target?
I think originally our target is HKD 32 billion. Given the news announced today, we better stick to the more conservative forecast in a way to show respect to our finances. Maybe let the market settle a bit and then if there is any revision, we will notify you. Yeah.
The lady on the third row.
Just a follow-up question also regarding the measure, since some of your projects are targeting at the small and medium-size unit. Sorry, I am Amy Luk from JP Morgan. Would you be considering, say, providing some support like second mortgage in case, say, the demand from this sort of segment is getting affected by the new measures of lowering the loan-to-value ratio? Thank you.
I think of course we have always been providing second mortgage.
Yes. For all our projects and all along, I think that unavoidably there temporarily may be some impact on the new measure, but I think the market will gradually digest this impact. All along for our new projects, we have been providing second mortgage to our customers.
Okay.
Thank you. David Ng from Macquarie. Two questions. When I look at your profit margin for the China rental segment, it seems to increase quite significantly. I think it was only around 70% or below 70%, and then it went up to 75%. So now the Hong Kong rental margin actually is the same as in the China rental margin, which is strange because of course we do expect more taxing in China. Is that a one-off thing or are there things that we should watch out as a trend that the China rental margin is now approaching the same for the Hong Kong IP? Second question is on MOKO. When we look at MOKO, it seems to be again a new format of shopping mall in Hong Kong. Well, actually, not just for Sun Hung Kai, but also for Hong Kong, right?
The question is as we are approaching a peak of growth of mainland tourists and a change in the shopping pattern and whether there may be some changes in policy for tourism down the road, how is Sun Hung Kai adjusting or planning the new shopping malls? Should the focus be more on the local Hong Kong people? If that's the case, is there any particular demographics that you are focusing more on such that your upcoming malls or maybe even the existing mall upon potential refurbishment that you will be heading towards a different style or different direction down the road? I guess using MOKO as an example. Thank you.
I think for China, our rental margin is high because we own several high-end malls and office. The rental is high, whereas Hong Kong we have to take the average because, for example, like in Shanghai IFC, our rental relative to the market is higher. That explains why the profit margin is high because I think in China, we tend to own the high-end mall with a high-end office.
Sustainable?
Huh?
Sustainable.
Sustainable because I think our malls are all in the first-tier city, well, in Shanghai and on the first-tier cities. Therefore, I think the malls that are not doing well are the ones in Chengdu, all those second-tier cities. We are confident that our Shanghai malls will do better over time. On the MOKO, I think our malls in Hong Kong, a lot of our malls are in the regional malls which are really primarily catering for Hong Kong people. Of course, there are mainland shoppers, but those are just a bonus. I think even if the mainland tourists are capped, I presume the Hong Kong government would be smart enough to allow the high-end tourists to still come to shop. But on the MOKO, I think we are still developing our mall format.
If you have any good idea, you can give me a call later. But we're still trying to test the format. Any other?
YOHO, actually, we're dividing into two phases. The Midtown one is going to be open by the end of this year, and the phase three, the big one, will be open by the early part of 2017. Together, in the Yuen Long area, after the completion of the last phase, we will have 1 million square feet of prime shopping.
Okay. Any other questions? Please. Gentleman over here.
Thanks. Anthony Wu, Goldman Sachs. Questions on your rental operations. Can management share with us where we are at the reversionary cycle for your retail properties in both Hong Kong and in China? Also, the same question applies to office. Is there any particular pocket of your portfolio there which are particularly not doing well? Thank you.
I think on the reversionary cycle, when we renew rental now, it is renewing the lease entered into three years ago. So, there is still room to raise the rental. Because as you know, in Hong Kong, for 2013 retail sales have grown 10%, 20%. So, by 2012 to 2013, the retail sales are still growing at a very fast pace. 2014 has slowed down. Therefore, for the retail portfolio, there is still room to raise the rental upon renewal of leases. On the office, depends on the location, of course. For Central, not much room to raise rental. But for the Kwun Tong suburban, even for ICC, there is still plenty of room to raise rents.
Okay, we have time for one last question. Is there one. Gentleman over here.
Corey Chan from Morgan Stanley. When I saw the contribution from associate and joint ventures for your property sales business in China, it is a negative number for the first half. Just want to understand what is the major cause for that loss on the EBIT level?
This refers to our joint venture with China Resources in Hangzhou. We have 40%; China Resources has 60%. They are leading the project. As you know, in Hangzhou, there has been price discounting. It is a very tough market in Hangzhou. With the sales price coming down, I think the volumes are picked up. Of course, I think in the initial phase, we have to suffer losses. I think in the future phases, hopefully, we will be able to catch up and make some money.
On that note, that is all we have the time for today. Thank you for coming. Ladies and gentlemen, hope you found this briefing informative. We have got some refreshment outside, so please stay and enjoy. Again, thank you for coming, and have a lovely weekend ahead.